2022 (11) TMI 984 - AT - IBC

Tribunal Stays CoC Formation; CEO to Manage Payments Amid Indian Bank's Intervention in Corporate Debtor Case.

The NCLT issued an interim order staying the formation of the CoC, thereby suspending the IRP's duties. Indian Bank's intervention was permitted, ... Distinction between stay of operation of an order and quashing of an order - effect of an interim stay on restoration of pre-admission status - powers and duties of Interim Resolution Professional during a stay - continuity of essential payments (wages, ration, electricity) during CIRP stay - requirement of leave of Tribunal for settlements by suspended directors - intervention by a secured creditor in an appealDistinction between stay of operation of an order and quashing of an order - effect of an interim stay on restoration of pre-admission status - Whether the interim stay of the admission order dated 28.10.2022 restores the Corporate Debtor to its pre-admission position and permits it to function as before admission of CIRP. - HELD THAT: - The Tribunal applied the settled principle that a stay of the operation of an order does not amount to quashing that order and does not restore the position as it existed prior to the order. Relying on Shree Chamundi Mopeds Ltd. and subsequent authorities, the Court held that while the stay renders the impugned admission order temporarily inoperative, it does not wipe the order out of existence or revive the pre-admission status. The factual matrix of the present case (admission under Section 7 and subsequent stay) is distinct from cases where the reference/order itself is stayed such that jurisdiction never arose; here the admission had been made and merely stayed. Accordingly, the Corporate Debtor cannot be permitted to resume functioning as it did prior to 28.10.2022 merely by reason of the interim stay. [Paras 14, 15, 16, 17, 18]Stay of the admission order does not restore the Corporate Debtor to its pre-admission position; it remains that the admission order continues to exist in law though rendered inoperative by the interim stay.Powers and duties of Interim Resolution Professional during a stay - Whether the Interim Resolution Professional may continue to carry out functions under the admission order after this Tribunal's interim stay dated 07.11.2022. - HELD THAT: - The Tribunal found that the IRP was appointed by the admission order which has been stayed by the interim order of this Tribunal. By virtue of that interim order the IRP cannot take further action in pursuance of the impugned admission order. Thus the IRP is not entitled to discharge functions under the admission order while the stay remains in force. [Paras 19]The IRP is restrained from carrying on functions under the impugned admission order following the interim stay.Continuity of essential payments (wages, ration, electricity) during CIRP stay - requirement of leave of Tribunal for settlements by suspended directors - How day-to-day operations and essential payments of the Corporate Debtor are to be managed while neither the IRP may act nor the Corporate Debtor be restored to full pre-admission functioning. - HELD THAT: - Recognising the need to maintain the Corporate Debtor as a going concern and to avoid hardship to workers, the Tribunal directed limited measures to permit continuity. The CEO/officers authorised to operate bank accounts are permitted to make payments of wages, ration distribution, electricity dues and other necessary expenses at levels prevailing prior to the admission order, subject to submission of weekly details of expenditure to the IRP and the Suspended Managing Director. Any other payments require prior leave of the Tribunal. Further, any settlement entered into by suspended directors with the UCO Bank requires leave of the Tribunal. [Paras 20]Limited operational payments necessary to maintain the Tea Gardens as a going concern are permitted through authorised officers with reporting requirements; other payments and any settlement by suspended directors require leave of the Tribunal.Intervention by a secured creditor in an appeal - Whether Indian Bank may be permitted to intervene in the appeal. - HELD THAT: - Having considered the application, the Tribunal allowed the intervention application of Indian Bank and permitted it to be heard as an intervenor in the proceedings. [Paras 20]Indian Bank's application to intervene is allowed.Final Conclusion: The interim stay of the admission order does not reinstate the Corporate Debtor to its pre-admission status; the IRP is restrained from acting under the stayed admission order; limited payments necessary to keep the corporate debtor as a going concern (wages, ration, electricity and similar essential expenses) are permitted through authorised officers with weekly reporting to the IRP and Suspended Managing Director, other payments require leave of the Tribunal, settlements by suspended directors require leave, and Indian Bank is permitted to intervene. Issues Involved:1. Challenge to the Order dated 28/10/2022 admitting Section 7 Application filed by UCO Bank.2. Interim Order staying the formation of Committee of Creditors (CoC).3. Role and actions of the Interim Resolution Professional (IRP).4. Intervention by Indian Bank.5. Management and operational control of the Corporate Debtor during the stay period.6. Payment of wages and necessary expenses for the Corporate Debtor's ongoing operations.7. Settlement proposals with UCO Bank and its implications.Issue-wise Detailed Analysis:1. Challenge to the Order dated 28/10/2022 admitting Section 7 Application filed by UCO Bank:The appeal was filed by the Suspended Director of the Corporate Debtor challenging the National Company Law Tribunal (NCLT), Kolkata Bench's order admitting the Section 7 Application filed by UCO Bank. The appeal was initially taken up on 04/11/2022, and an interim order was passed directing the IRP not to constitute the CoC.2. Interim Order staying the formation of Committee of Creditors (CoC):On 07/11/2022, the Tribunal reiterated its interim order, staying the formation of the CoC and allowing Indian Bank to file an Intervention Application. The interim order also stayed the impugned order until the next hearing date, scheduled for 10/01/2023.3. Role and actions of the Interim Resolution Professional (IRP):The IRP filed an application seeking clarification on whether he should continue to act as the IRP and take steps to keep the Corporate Debtor as a going concern. The Tribunal clarified that the IRP could not carry out any functions since the order appointing him was stayed. Thus, the IRP was not entitled to discharge any function after the interim order dated 07/11/2022.4. Intervention by Indian Bank:Indian Bank filed an application to intervene in the appeal, citing that the Corporate Debtor owed it dues of more than Rs. 85 Crores and that any settlement with UCO Bank should also consider Indian Bank's dues. The Tribunal allowed Indian Bank's intervention application.5. Management and operational control of the Corporate Debtor during the stay period:The Tribunal faced the issue of how the Corporate Debtor's operations, especially the Tea Gardens, could continue when the IRP could not function, and the Corporate Debtor could not be restored to its pre-28/10/2022 status. The Tribunal decided that the CEO or authorized officers of the Corporate Debtor could make payments for wages, electricity dues, and other necessary expenses, subject to weekly reporting to the IRP and the Suspended Managing Director.6. Payment of wages and necessary expenses for the Corporate Debtor's ongoing operations:The Tribunal acknowledged the necessity of continuing payments for wages, ration, electricity, and other expenses to prevent disruption in the Corporate Debtor's operations. It permitted the CEO or authorized officers to manage these payments, ensuring that the Corporate Debtor could continue as a going concern.7. Settlement proposals with UCO Bank and its implications:The Tribunal noted that any settlement by the Suspended Directors of the Corporate Debtor with UCO Bank would require the Tribunal's leave. This was to ensure that any settlement did not adversely affect the interests of other creditors, such as Indian Bank.Conclusion:The Tribunal issued specific directions to ensure the Corporate Debtor's operations could continue without the IRP's involvement, maintaining the status quo until the next hearing. The Tribunal allowed Indian Bank's intervention and emphasized that any settlement with UCO Bank would need its approval. The appeal was scheduled for further hearing on 10/01/2023.